Serbia’s labour market is recording lower unemployment alongside declining formal employment and rising real wages, while productivity growth is becoming increasingly important for sustaining economic expansion. The unemployment rate fell to a record-low 7.2% in the second quarter of 2026, down 1.3 percentage points from a year earlier. Youth unemployment also decreased, reaching 22%.
Formal employment, however, moved in the opposite direction. The number of formally employed people declined 0.5% year on year in January-July, to approximately 2.355 million, while private-sector employment fell 0.6%.
Manufacturing accounts for much of employment decline
The reduction in formal employment was concentrated to a significant extent in manufacturing, particularly the clothing industry. At the same time, employee earnings continued to increase. Average net wages reached RSD 119,469, or approximately €1,018, during January-June. That represented an 11.5% nominal increase and an 8.4% rise in real terms, adding to labour costs for businesses across the economy.
Productivity rises as employment falls
Higher wage costs have so far been accompanied by stronger productivity. Overall productivity increased 4.1% year on year in the first half of 2026, while economic activity expanded despite the modest decline in employment. The relationship between labour costs, employment and output is becoming increasingly important for Serbian companies. A workforce that is shrinking or growing only slowly limits the ability of manufacturers, construction companies and service providers to expand production simply by recruiting additional employees. Companies will increasingly need to rely on automation, capital investment, workforce training and higher-value production to generate additional output.
Wage growth creates competitiveness pressures
Rising real wages can be sustained when productivity increases at a sufficient pace. If labour costs continue to rise substantially faster than output per worker, companies could face pressure on margins and export competitiveness. The simultaneous decline in unemployment and formal employment also means the unemployment rate provides only part of the picture of available labour. Labour-force participation, demographic trends, migration and sector-specific skills are becoming increasingly relevant to companies assessing workforce availability.
Investment becomes more capital-intensive
Serbia’s next investment cycle is therefore likely to require greater use of capital and technology. For manufacturers, access to workers may become an increasingly important consideration alongside tax incentives, infrastructure and energy costs when companies evaluate capacity expansion. The 4.1% productivity increase provides support for higher wages and output, while maintaining productivity growth will remain important as the available labour pool becomes tighter and companies continue developing export-oriented production.
